The Macroeconomic Consequences of Reciprocity in Labor Relations

37 Pages Posted: 25 Aug 2005

See all articles by Jean-Pierre Danthine

Jean-Pierre Danthine

University of Lausanne - Institute of Banking and Finance (IBF); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

André Kurmann

Drexel University - LeBow College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

We develop and analyze a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent-sharing - a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm-internal perspective on efficiency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and asymmetric responses to technology and demand shocks.

Keywords: Reciprocity, rent-sharing, efficiency wages, wage rigidity

JEL Classification: E24, E32, J50

Suggested Citation

Danthine, Jean-Pierre and Kurmann, André, The Macroeconomic Consequences of Reciprocity in Labor Relations (August 2005). CEPR Discussion Paper No. 5174, Available at SSRN: https://ssrn.com/abstract=790665

Jean-Pierre Danthine (Contact Author)

University of Lausanne - Institute of Banking and Finance (IBF) ( email )

Lausanne, 1015
Switzerland
+41 21 692 3485 (Phone)
+41 21 692 3335 (Fax)

HOME PAGE: http://www.hec.unil.ch/jdanthine/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

André Kurmann

Drexel University - LeBow College of Business ( email )

School of Economics
3220 Market Street
Philadelphia, PA 19104
United States

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